The Turnbull Government is committed to putting workers first by ensuring employers pay the entitlements they owe their workers. That's why the Government will implement changes to stop the corporate misuse of the taxpayer funded Fair Entitlements Guarantee (FEG) scheme.

The Minister for Revenue and Financial Services, the Hon Kelly O'Dwyer MP, and the Minister for Small and Family Business, the Workplace and Deregulation, the Hon Craig Laundy MP, today released draft legislation for public consultation. The draft legislation will strengthen and improve enforcement and recovery options of unpaid employee entitlements to deter misuse of the FEG scheme. This will also ensure the burden on the scheme is relieved so that it remains sustainable.

The FEG scheme should be a last resort. It provides financial assistance to employees left with unpaid employment entitlements when they lose their job due to the insolvency of their employer.

Evidence shows that some employers are structuring their corporate affairs to avoid paying employee entitlements when a business becomes insolvent. This results in the improper shift of costs of meeting employee liabilities that can and should be paid directly by the employer onto Australian taxpayers through the drain on the taxpayer funded scheme. Average annual costs under the FEG scheme have more than tripled from $70.7 million in the four years to 30 June 2009, to $243.6 million in the four years to 30 June 2017.

"Corporate misuse of the Fair Entitlements Guarantee scheme hurts all hard-working Australians, by placing an unfair burden on Australian taxpayers who ultimately bear the costs of those employers improperly relying on the scheme," Minister O'Dwyer said.

"It also creates unfair commercial advantage over their honest competitor businesses who do the right thing by their employees."

The proposed changes will:

penalise company directors and other persons who engage in transactions that are directed at preventing, avoiding or reducing employer liability for employee entitlements;

strengthen the ability under the law to sanction directors and company officers with a track record of insolvencies where FEG is repeatedly relied upon; and

ensure recovery of FEG from other entities in a corporate group where it would be just and equitable and where those other entities have benefited from the work done by the insolvent entity's employees.

"These new laws will significantly strengthen the existing provisions, to deter avoidance of employee obligations and hold employers accountable when they seek to exploit the FEG scheme," Minister Laundy said.

The changes are tightly targeted to deter and punish only those who seek to avoid their employee entitlement obligations and exploit the FEG. They will not affect the overwhelming majority of companies who are doing the right thing.

These reforms build on other actions the Government has taken to putting workers first, such as introducing legislation to tackle non-payment of the Superannuation Guarantee by targeting employers that fail to meet their superannuation obligations; and combatting illegal phoenix activities, involving the deliberate and intentional avoidance of company debts and liabilities by company operators including employee entitlements.

Stakeholders are invited to lodge submissions online via the Treasury website. Submissions close on 9 July 2018.